Outsource and Survive

With such turmoil in the world economies and with daily news around the world talking abut the credit crunch, mortgage crisis, food shortages and inflation rising, I thought it would be good to share with you an interview between Suresh Yannamani and Outsourcing Institute entitled OUTSOURCE AND SURVIVE which is in line with a number of presentations that I have made over the last 3 years and what I personally feel is even more pertinent for SMB’s in today's environment.

We are entering a new stage in business process outsourcing (BPO) automation. The drivers of this next stage are not technological changes per se, but changes in competition and how businesses operate and execute their strategies. The internet may be the agent of change, but the engine of change is the need to cut costs and improve core business processes in increasingly competitive global markets. As we look to the future, there are four distinct outsourcing drivers to consider.

Globalization
The first of these is globalization. To remain competitive and to spur top-line growth, large companies are increasingly seeking to enter foreign markets. To effectively serve local markets, businesses face increasing pressure to work with ever increasing numbers of home-grown producers, suppliers, government agencies and supply chain partners.

For low-cost producers to exist in the global economy, they must rely on outsourcing. Look no further than the steel industry. In the 1960s, the USA was home to the dominant steel companies. As steel became cheaper to produce in Korea and Taiwan, US steel jobs went from 600,000 in 1960 to 230,000 in 1999, although even with the reduced workforce, US steel companies make roughly the same amount of steel.

Internet Infrastructure
The second major driver is the internet. The global sourcing model is further evidence of the fundamental transition from an industrial economy to an information economy.
The Internet also enables very sophisticated remote monitoring in offshore locations, as a result of new CRM technology. Technology as a whole is enabling outsourcing to be successful, and with that success, quality and added value are getting better.

The BPO trend will require a major infrastructure build-out that includes broadband connectivity, databases, hosting, security tools, application integration tools, web-enabled ERP applications, application integration modules, supply chain management, content management, dynamic pricing suites, payment and settlement -- the list goes on. The pundits who are predicting the demise of the IT industry might be surprised by the growth in infrastructure spending.

Core and non-core
Another driver is the distinction being made between core and non-core processes. Companies today are taking a close look at their business process and determining what processes are core and non-core to their business, and realizing that most non-core processes are good candidates for outsourcing.

Initially low-skilled jobs in manufacturing, call centers and computer coding were shifted abroad. But as more companies expand their offerings into outsourcing, new functions – such as human resources and knowledge skills in areas such as technology -- are also being outsourced. As the globalized labor market continues to grow, more high-skilled jobs, in areas such as accounting and engineering, will probably move to low-cost areas of the globe.

Offshoring outsourcing
The final driver is offshoring. In the 1970s, many Western companies began manufacturing products in offshore locations such as Japan, Korea, Thailand and Taiwan. Despite the relatively high cost of transporting the goods by sea and air, it was cheaper to manufacture these goods in the Far East (and in Mexico after the NAFTA treaty) than to keep manufacturing in the US or Europe.

Most companies are now accustomed to manufacturing offshore. And what took place in manufacturing is now occurring in backroom processing and services. With the advent of reliable, cheap global communications and the internet, and with the abundance of skilled labor forces in many developing countries, offshore service centers have become both feasible and a reality.

The main driver of outsourcing has always been cost savings. Since cost is such a priority, it makes sense that one of the biggest trends in outsourcing is offshoring. Countries such as India have a large, highly educated, English-speaking resource pool from which to draw. By outsourcing functions such as call centers or accounting, operational expenses can be reduced by at least 50 per cent.

The bottom line
With outsourcing's next wave gathering momentum, businesses that don't find a way to surf this wave will forfeit significant competitive advantage. Yet, as with all management tools, BPO will continue to reflect the ability of forward-thinking managers to anticipate and adapt to change and to use outsourcing effectively within an overall framework of continuous improvement.